Caution urged on European growth prospects

Aug. 23, 2013 at 7:11 PM
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BRUSSELS, Aug. 23 (UPI) -- Markets buoyed by minuscule growth data from Europe were served cautionary advice by think tanks and analysts who remain skeptical of an early turn in troubled eurozone's fortunes.

Eurozone consumer confidence rose in August compared with July, the European Commission said in a flash estimate Friday, but independent financial analysts warned against reading too much in recent upbeat assessments of the 28-nation EU's economy and even less of the troubled 17-nation eurozone.

A tiny growth rise led to headlines the eurozone was headed toward a 26-month high. But analysts warn the figures are patchy and do not represent the true state of either the eurozone, with its rampant unemployment, or the 28-member EU, with its uneven performance.

European Commission data said eurozone consumer confidence indicators rose "markedly" in the month, climbing from minus 17.4 to minus 15.6 in the eurozone and from minus 14.8 to minus 12.8 in the European Union, which added Croatia as its 28th member July 1.

A 0.3 percent growth rise cited by EU statistical office Eurostat made clear stronger domestic demand in France and Germany -- rather than a wider trend across the EU or eurozone -- helped push the economy into growth after the prolonged downturn.

The gain followed a 0.2 percent economic decline in the first quarter in the 17-member eurozone and a 0.1 percent decline in the EU.

"The GDP increase looks likely to overstate the true health of the Eurozone economy in the second quarter," Markit Economic Research said in a report.

In particular, it said, the increase looks to be based on unsustainable factors, notably a weather-related upturn and a record jump in car output. The upturn also sits in contrast to weaker business survey data, notably in France, where the largest question marks hang over the the national income growth data.

"This combination of temporary-looking growth drivers and the contrast with the survey data suggests that the impressive performance may not be repeated in the third quarter," the report warns.

"Nevertheless, while there is some evidence that the second-quarter GDP number overstates the true underlying health of the Eurozone, there's little doubt that the region is slowly mending."

Markit says variations in national performance underline the fragility of the upturn, especially when deeper looks at the data suggest that the strength of growth in both France and Germany looks somewhat unsustainable.

France looks particularly fragile, recent figures show. Business slump in the country deepened in August for the first time in five months. This could be partly because of extended summer holidays but the French economy is likely to contract by 0.3 percent in the third quarter. Most analysts remain uncertain about the next phase in French economy, a potential source of another wobble in the eurozone.

Another potential source of instability for the eurozone are renewed fears Greece may need a third financial bailout. German speculation about a Greek relapse rattled Chancellor Angela Merkel's re-election campaign. Germany goes to polls Sept. 22 to elect a new Bundestag parliament.

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